Jax Tyres Pty. Ltd. v. Federal Commissioner of Taxation.
Judges:David Hunt J
Court:
Supreme Court of New South Wales
David Hunt J.
The plaintiff in this action, Jax Tyres Pty. Ltd., carries on the business of retreading worn tyre cases, obtained both locally and imported. In 1984, it was successful in persuading the Federal Court (Beaumont J.) to rule that such retreaded tyres are not liable to sales tax, upon the bases that the operation of retreading tyres does not constitute a manufacture of goods within the meaning of the definition of ``manufacture'' in sec. 3(1) of the Sales Tax Assessment Act (No. 1) 1930, and that the retreaded tyres resulting from that operation are not goods manufactured in Australia:
Jax Tyres Pty. Ltd. v. F.C. of T. 84 ATC 4768. An appeal to the Full Court was dismissed:
F.C. of T. v. Jax Tyres Pty. Limited 85 ATC 4001.
The plaintiff has brought these present proceedings to recover from the Commissioner of Taxation (who administers the sales tax legislation) the amount of $296,054.08 which it had paid as or for sales tax in relation to tyres
ATC 4536
retreaded by it since the Commissioner had first sought to levy sales tax upon that operation in 1983 (see the Commissioner's Ruling ST 2026). The plaintiff claims to be entitled to a refund of that amount and to be entitled to recover that refund pursuant to sec. 12A of the Sales Tax Procedure Act 1934. It also claims interest.So far as presently relevant sec. 12A provides that, where any person has paid any amount either as or for sales tax in respect of any goods under protest upon a prescribed ground, he is not entitled to a refund of that amount unless he succeeds in an action upon that prescribed ground brought against the Commonwealth pursuant to that section for the recovery of the amount so paid. Such an action must be brought within six months after the amount was paid. The payment will only be regarded as having been made under protest if it is accompanied by a statement in writing bearing the endorsement ``paid under protest'' and stating the prescribed ground upon which the protest is made. It is a prescribed ground that the goods in respect of which the amount is paid are not goods manufactured in Australia by that person. I will have to return to consider the provisions of sec. 12A more fully later in these reasons.
There is no dispute that this action was brought within the time specified by sec. 12A. The Commissioner expressly stated that no point was taken that the action should have been brought against the Commonwealth. The point which he did take was that sec. 12A had no application in the present case because the plaintiff has not complied with its terms.
Four issues arise in relation to whether the plaintiff has complied with the terms of sec. 12A. The first is a straightforward factual matter. The Commissioner produced from his files each of the returns with which the amounts were paid by the plaintiff; one (for the month of July 1983, and the first month in which sales tax was levied on retreaded tyres) is not accompanied (as are all of the other returns) by a statement in writing bearing the endorsement ``paid under protest'' and stating the prescribed ground upon which the protest was made. In relation to each of the others, the return in the Commissioner's file has attached to it a letter in the form drafted by the Motor Traders' Association of New South Wales which includes the statement:
``The attached sales tax return for the month of... includes an amount in respect of retreaded tyres dealt with by this company. That amount is paid under protest on the ground that the retreaded tyres in respect of which that payment is made are not goods manufactured in Australia within the meaning of the Sales Tax Assessment Act (No 1) 1930 as amended.''
The Motor Traders' Association had advised its members that the monthly return itself should be endorsed with the words ``Paid under protest'' and should have attached to it a covering letter in that form.
Evidence was given on behalf of the plaintiff that instructions had been given by one of its directors (Mr Hurrell) to the company accountant (Mr Elliott) - whose duty it was to sign the sales tax return as prepared by a clerk - to comply with the advice given by the Motor Traders' Association. Understandably, however neither Mr Hurrell nor Mr Elliott was able to say specifically that such a letter did in fact accompany the July return. Mr Hurrell thought it was highly unlikely that the letter had not been sent in accordance with his instructions.
If the letter in question was sent with the July return then the only explanation for its absence from the Commissioner's files would be that, being the plaintiff's first return relating to sales tax on retreaded tyres, the July return was somehow dealt with by the Commissioner's filing clerk differently from its returns in the succeeding months. The likelihood that this is what happened nevertheless diminishes considerably when it is seen that each of the returns after July (but not that for July) was itself endorsed with the words ``Paid under protest'', as advised by the Motor Traders' Association. Thus the July return was not only dealt with differently by the Commissioner's filing clerk; it was also dealt with differently by the plaintiff's clerk who prepared it for Mr Elliott's signature I do not think that it is likely that the clerk on this one occasion would have complied only with part of the advice given by the Motor Traders' Association. Certainly, no evidence was given by the clerk that he may have done so.
The plaintiff relied also upon the Defence as originally filed by the Commissioner (and verified on oath) and the first of the amended
ATC 4537
Defences (which was unverified); both failed to raise this point. The plaintiff said that such failure supported the inference which was otherwise available from the evidence that such a letter accompanied the July return also. There was, however, no cross-examination of Mr Lochrin who had the custody of the Commissioner's files, to suggest that those files had not been properly kept.In these circumstances, I am not satisfied that the July return was, as required by sec. 12A(3), accompanied by a statement in writing bearing the necessary endorsement and stating the ground upon which the protest was made. Accordingly, the amount of the plaintiff's claim must be reduced by $65,213.32, which was the amount paid with the July return.
The next issue which arises is whether the quoted statement from the letter accompanying the remainder of the returns (as drafted by the Motor Traders' Association) complies with the terms of sec. 12A. The relevant prescribed ground upon which the protest was made is defined by subsec. (4) as being:
``... any ground to the effect, expressly or impliedly, that the goods in respect of which the amount was paid were not... goods manufactured in Australia by that person.''
The Commissioner says that the identity of the manufacturer (required by the words which I have emphasised) is not stated in the quoted passage from the letter. He draws attention to the fact that the definition of ``prescribed ground'' is in two parts the first (and relevant) one, expressly made referable only to amounts paid as or for sales tax payable pursuant to the Sales Tax Assessment Act (No. 1) 1930, is applicable only if the goods are manufactured by the person who made the payment; the second is made referable to such payments in relation to any of the other sales tax statutes, and is applicable by whomever the goods were manufactured. (Assessment Acts Nos 2, 3 and 4 deal with the liability for sales tax of persons other than the manufacturer.) The absence from the letter of an express admission by the plaintiff that the tyres were manufactured by it, the Commissioner argued, leaves open the possibility that the refund may be sought by someone who was not the manufacturer.
In my view, no such express admission was necessary because:
- (a) It is clear from the terms of the letter that the protest refers to a payment as or for sales tax payable under the No. 1 Assessment Act.
- (b) That sales tax is payable only by the manufacturer (sec. 19). It is clear that the payment was made by the taxpayer.
- (c) The letter says that the payment was made in respect of ``retreaded tyres dealt with by this company''.
- (d) The definition permits the ground to be stated ``to the effect, expressly or impliedly'' of its terms.
Any interpretation of the letter as asserting that the tyres had been manufactured by someone other than the taxpayer (who had paid the tax upon the basis that it was the manufacturer) would be perverse. I reject the Commissioner's argument that the quoted statement from the letter accompanying the returns (other than the July return) fails to comply with the terms of sec. 12A.
The third issue in relation to the plaintiff's compliance with the terms of sec. 12A raises a question of the proper construction of that section; it will take somewhat longer to deal with than did the first and second of these issues. The Commissioner argued that, properly construed, sec. 12A gives to a taxpayer a right to sue for a refund only in those cases where the plaintiff is able to establish that the Commissioner would otherwise have been empowered to make a refund pursuant to sec. 26 of the Sales Tax Assessment Act (No. 1). I will outline the provisions of sec. 26 shortly. The Commissioner submitted that, as no such power was given by sec. 26 in the present case the plaintiff had not shown such a compliance with those provisions of sec. 26.
Section 12A of the Sales Tax Procedure Act does not expressly require a plaintiff to establish a compliance with the terms of sec. 26 of the No. 1 Assessment Act. However, that sec. 12A must be construed in the context of all the sales tax legislation, including the Assessment statutes, is beyond dispute:
D.F.C. of T. (S.A.) v. Ellis & Clark Ltd. (1934) 52 C.L.R. 85 at p. 89.
Neither does sec. 12A itself expressly establish a taxpayer's entitlement to recover the amount paid as or for sales tax. What it does
ATC 4538
express is the extinction of any right which a taxpayer may otherwise have to recover such an amount (Werrin v. The Commonwealth (1937-1938) 59 C.L.R. 150 at pp. 161, 164) unless he succeeds in an action brought pursuant to that section for its recovery, which is restricted to very limited circumstances. (I will refer to the terms of the proviso to sec. 12A(1) later.)
Section 12A assumes the existence of a right to have such payments refunded when made as or for sales tax when in truth no tax was payable: Werrin v. The Commonwealth at pp. 160, 164. Notwithstanding the views expressed by the minority Judges in that case at pp. 157-160, 168-169, it is now accepted by the High Court that a common indebitatus count for money had and received by the defendant for the use of the plaintiff lies to recover taxes wrongly exacted when paid under compulsion:
Mason v. New South Wales (1958-1959) 102 C.L.R. 108 at pp. 117, 129, 133-135, 139, 145-146. That was a case where the taxing statute was itself invalid, but there would be in my view no difference in principle when the Commissioner invalidly seeks to levy an otherwise valid tax as he did in the present case by ST 2606 and money is paid as or for tax under compulsion. Whether or not the payments would have been so recoverable at common law in the present case was not investigated in the hearing before me. Both parties proceeded upon the basis that the right to a refund assumed by sec. 12A did in fact exist and was otherwise established in this case if there was a compliance by the plaintiff with the limiting requirements of sec. 12A. Such an approach is supported by the terms of sec. 12A itself, which oblige the taxpayer to succeed in an action brought pursuant to that section for the recovery of the amount paid as or for sales tax, upon the prescribed ground identified at the time of payment. Such an obligation, it seems to me, is consistent only with an interpretation of sec. 12A as establishing or regulating a taxpayer's entitlement to recover that amount.
Section 26 of the Sales Tax Assessment Act (No. 1) upon which the Commissioner relied provides that, where he finds in any case that sales tax has been overpaid by a person and where he is satisfied that such tax has not been passed on - or if it has, that it has been refunded - he shall either refund the amount of the tax overpaid or apply the amount of any tax overpaid against any liability of that person to the Commonwealth (being a liability which arises out of a tax statute administered by the Commissioner) and refund any part of the amount which is not so applied. In the present case, the plaintiff conceded that it passed on (included in price rises) the amounts which it had paid as or for sales tax; it also conceded that it has not refunded those amounts - although it has agreed with some customers to do so if successful in this action, and other customers have already deducted those amounts from accounts which are owing to the plaintiff.
The Commissioner saw some significance in the description in sec. 12A of the action which must be brought pursuant to it as one for the ``recovery'' of the amount paid. The evident policy of the sales tax legislation, he said, is that the sales tax will be passed on to the consumer in the purchase price of goods and that no more tax should be paid than is properly payable. He pointed to the provisions in the regulations which permit refunds to be made where double tax has become payable but only where it is shown that the tax was included in the price at which the applicant purchased the goods. This context is said to explain why the Commissioner is prohibited from refunding overpaid sales tax pursuant to sec. 26 of the No. 1 Assessment Act unless the taxpayer is able to demonstrate that he has not passed on that tax to the purchaser (or has refunded it). It then follows, the Commissioner submitted, that a plaintiff seeking pursuant to sec. 12A the ``recovery'' of sales tax which he has paid must show not only that sales tax was not payable but also that the Commissioner was not prohibited from refunding it. It is only by requiring sec. 12A to be read as being subject to the provisions of sec. 26, he argued, that this legislative policy can be given effect.
The plaintiff pointed to the introductory words of sec. 12A of the Sales Tax Procedure Act (``Notwithstanding the provisions of any Sales Tax Assessment Act (other than provisions relating to objections and appeals) or of any regulations made under any such Act...'') as indicating a legislative intention that that section should be construed independently of sec. 26 of the No. 1 Assessment Act. Those introductory words seem to me, however, to do no more than rule out a construction of any provision elsewhere in the sales tax legislation as giving a less
ATC 4539
restricted right to sue for the recovery of an amount paid as or for sales tax. I have not paused to discover where there may exist in that legislation a provision otherwise capable of such a construction; sec. 12A is not the most happily framed legislative provision but that appears to me to be the only sensible construction to be given to those particular words.The plaintiff's second answer to the Commissioner's argument was that sec. 12A of the Sales Tax Procedure Act and sec. 26 of the No. 1 Assessment Act deal with different subject matters. In my view, this answer is correct. Necessarily inherent in the Commissioner's argument is the proposition that the two sections deal with the same subject matter. That a scheme of legislation (even one in as complex a form as that of the sales tax legislation) should make separate provisions dealing with the same subject matter is prima facie unusual. That these two sections do not deal with the same subject matter is demonstrated in at least two ways if not more.
Firstly, sec. 26 deals with the refund of tax which has been ``overpaid''. To overpay something is to pay more than is due (SOED). Section 26 assumes a liability to pay some tax, and addresses the right to a refund of that amount of tax which has been overpaid. Section 12A on the other hand addresses the right to a refund when in truth no tax was payable: Werrin v. The Commonwealth at pp. 160, 164. There is a clear distinction drawn in the Sales Tax Procedure Act between sec. 12A and 12C, which imposes a time limit upon the right to a refund of an overpayment of tax.
Secondly, sec. 12A(1) itself contains a proviso which enables the Commissioner to refund any amount paid as or for sales tax where he is satisfied (inter alia) that the amount so paid has not been passed on to the purchaser of the goods. This restriction to the Commissioner's right to make a refund stated in the proviso to sec. 12A(1) would be entirely unnecessary if the Commissioner's argument were correct that sec. 12A must in effect be read subject to the provisions of sec. 26.
There is a third but perhaps less significant, reason for rejecting the Commissioner's argument. That argument appears to assume that it was necessary for the legislature to provide specifically a right of action simply to recover an amount which was made expressly refundable under sec. 26 (or under the proviso to sec. 12A) but which the Commissioner had wrongly refused to pay. That could not be so; a right to recover a refund which is granted by the legislation itself would not need to be provided specifically. The specific provision of a right in sec. 12A to the recovery of a refund suggests (at the very least) that that right is addressed to something different to the recovery of the refund which the Commissioner may but which he has wrongly refused to grant.
A fourth reason for rejecting the Commissioner's argument is the clear injustice which it may produce in some cases and which it would, if successful, produce in the present case. Section 26 requires the Commissioner to apply the amount of any tax overpaid against any liability of the taxpayer which arises out of a tax statute administered by him. The Commissioner argued that such a liability arises in the present case pursuant to the Sales Tax Assessment Act (No. 6), notwithstanding that no claim for such tax is made by the Commissioner in these proceedings. Such a liability is said to arise by reason of sec. 4 of the Sales Tax Assessment Act (No. 6) in relation to the sale by the plaintiff of casings which it imported into Australia, retreaded and sold to persons who did not quote their sales tax certificates. (It is conceded by the plaintiff that 20% of the worn casings retreaded by it were imported.) The plaintiff's liability for sales tax pursuant to the No. 6 Assessment Act is said to arise because the plaintiff had not itself quoted its sales tax certificate when importing these casings. Had the Commissioner brought proceedings to recover the sales tax said to be payable pursuant to the No. 6 Assessment Act, the plaintiff could have raised in those proceedings the effect of the Commissioner's erroneous Ruling ST 2026 upon its obligation to quote its certificate in relation to the importations: see sec. 12D of the Sales Tax Procedure Act, which permits the Commissioner to remit unpaid tax when his ruling has been altered. It is common ground that such an issue cannot be raised in the present proceedings. That is a highly unjust consequence of the Commissioner's argument that there is no need for him to bring proceedings to recover sales tax said to be payable pursuant to the No. 6 Assessment Act because sec. 12A must impliedly be read as
ATC 4540
being subject to the provisions of sec. 26. Such an unjust result would not have been intended by the legislature, and it indicates strongly that the implication in the legislation for which the Commissioner contends was not intended by the legislature either.I conclude that, in order to succeed in its action pursuant to sec. 12A of the Sales Tax Procedure Act, the plaintiff does not have to establish that the Commissioner would have otherwise been empowered to make a refund pursuant to sec. 26 of the Sales Tax Assessment Act (No. 1). In particular, I conclude that it is not necessary for the plaintiff to establish that the sales tax which it seeks to recover had not been passed on (or had been refunded) by it to its customers.
The Commissioner nevertheless maintained his argument that, in order to succeed pursuant to sec. 12A, the plaintiff is obliged to establish that no sales tax (that is, under any of the Assessment Acts) was payable by it at the time. This was the fourth and final issue which arose as to the plaintiff's compliance with the terms of sec. 12A. He said that, even if sales tax was not payable pursuant to the No. 1 Assessment Act (as the Federal Court held that it was not), it was payable pursuant to the No. 6 Assessment Act. The amounts paid by the plaintiff as or for sales tax were not, he said, paid pursuant to the No. 1 Assessment Act; they were simply paid without any indication of the particular legislative provision by which the liability was claimed to arise. The Commissioner argued that, in truth, an amount of sales tax was payable, so sec. 12A of the Sales Tax Procedure Act (which applies generally to all sales tax and makes no distinction in relation to the sales tax levied by the different Assessment Acts) has no application. It should perhaps be made clear that the Commissioner here did not suggest that the amounts paid by the plaintiff in unwilling compliance with his invalid levy of sales tax pursuant to the No. 1 Assessment Act will be applied by him in satisfaction of the sales tax which he now says was in any event payable pursuant to the No. 6 Assessment Act. What the Commissioner said is that, simply because sales tax was payable pursuant to the No. 6 Assessment Act the plaintiff is not entitled to a refund of the amounts wrongly claimed by him pursuant to the No. 1 Assessment Act. Apparently it remains open to the Commissioner, if he wishes, to bring proceedings to recover the sales tax now said to be payable pursuant to the No. 6 Assessment Act as well as to retain the amounts wrongly claimed by him pursuant to the No. 1 Assessment Act.
That somewhat unattractive argument however overlooks the fact that, in relation to all but the July 1983 payment, the plaintiff did specify very clearly (and in accordance with sec. 12A) that the payment was being made by it in relation to a liability for tax which the Commissioner sought to impose pursuant to the No. 1 Assessment Act. Indeed, it was directly related to a ``transaction, act or operation effected or done in relation to (the) goods'' upon which the Commissioner sought to levy sales tax pursuant to the No. 1 Assessment Act (the ``manufacture'' of the retreaded tyres) which was entirely different to that upon which the Commissioner now argues that sales tax was payable (the importation of the worn casings). There was thus in truth no sales tax payable for the transaction, act or operation in question.
The plaintiff has accordingly complied with the terms of sec. 12A and is entitled to a refund of the amount claimed, less the amount of the $65,213.32 which was not paid under protest as required by that section. The balance refundable by the Commissioner is $230,840.76.
The remaining issue which I have to determine is the plaintiff's entitlement to interest upon that amount. The plaintiff relied upon what it described as the Commissioner's strenuous attempts, notwithstanding the decisions of the Federal Court to retain the amounts paid. The short answer to that argument is that the Commissioner had no power pursuant to sec. 26 to refund the amounts paid because the plaintiff had not established that the sales tax had been refunded to its customers. The plaintiff has become entitled to a refund only because it has been successful in these proceedings brought pursuant to sec. 12A. The legislature enacted sec. 12A specifically to limit a taxpayer's right of recovery of amounts wrongly claimed as sales tax to the limited circumstances which it provides: Werrin v. The Commonwealth at pp. 161, 163, 164. One of those circumstances is the taxpayer's success in an action brought pursuant to sec. 12A. The plaintiff has only just
ATC 4541
now been successful in that action. It had no right to the refund until now. Accordingly, it has not been kept out of money to which it was entitled prior to today. The fact that the Commissioner (or the Commonwealth) has had the use of the money since it was paid by the plaintiff in 1983 in unwilling compliance with the Commissioner's invalid demands until now points to the unfairness of sec. 12A, but it does not give rise to a right to interest. Interest is a form of compensation for money which a plaintiff has been kept out of; it is not awarded as a form of punishment for the defendant's behaviour.I direct the entry of judgment in favour of the plaintiff for $230,840.76. I order the Commissioner to pay the plaintiff's costs.
This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.